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GNDU Queson Paper 2024
BA 5
th
Semester
ECONOMICS
(Economics of Development)
Time Allowed 3 Hours Maximum Marks 100
Note:-Aempt FIVE quesons in all, selecng at least ONE queson from each secon. The
h queson may be aempted from any secon. All quesons carry equal marks.
SECTION-A
1. What are the various measures of economic development ? Explain in detail.
2. Elucidate the concept of Disguised Unemployment and Unlimited Supply of Labour.
SECTION-B
3. Explain the Marxian concept of growth.
4. Discuss in detail Solow Model of Growth.
SECTIONC
5 Explain the dierence between balanced and unbalanced growth model.
6. Discuss the various stages of Rostow's theory.
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SECTION-D
7. What are the various sources of capital formaon?
8. Which technique should be used in labour abundant naon like India?
GNDU Answer Paper 2024
BA 5
th
Semester
ECONOMICS
(Economics of Development)
Time Allowed 3 Hours Maximum Marks 100
Note:-Aempt FIVE quesons in all, selecng at least ONE queson from each secon. The
h queson may be aempted from any secon. All quesons carry equal marks.
SECTION-A
1. What are the various measures of economic development ? Explain in detail.
Ans: Economic development means how a country improves the living standards of its
people over me. It’s not just about increasing income or wealth, but also about beer
educaon, health care, clean environment, equal opportunies, and happiness of people.
Let’s now understand the dierent ways or measures used to check how developed a
country is — using simple examples, facts, and data.
1. Gross Domesc Product (GDP) per capita
Explanaon:
GDP per capita means the total income of a country divided by its populaon. It tells how
much income an average person earns in a year. It is one of the most common ways to
measure economic progress.
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Example:
If India produces goods and services worth ₹300 lakh crore in a year and its populaon is
140 crore, then:
GDP per capita = ₹300 lakh crore / 140 crore = ₹2.14 lakh per person
This means, on average, one person in India earns ₹2.14 lakh per year (even if some earn
more and some less).
Fact:
As of 2024:
• India’s GDP per capita: Around $2,400
• USA’s GDP per capita: Around $85,000
This shows that the average American is earning much more than the average Indian
— suggesng higher development in the USA.
2. Human Development Index (HDI)
Explanaon:
HDI is a beer and more complete measure of development. It is given by the United
Naons Development Programme (UNDP). HDI considers:
• Life expectancy (Health)
• Educaon level (Schooling years)
• Income (GDP per capita)
The HDI score ranges between 0 to 1. The closer to 1, the more developed the country.
Example:
Let’s compare Norway and India:
• Norway’s HDI: 0.961 (Very High)
• India’s HDI: 0.633 (Medium)
This shows that people in Norway live longer, are more educated, and earn more than
people in India.
3. Per Capita Income (PCI)
Explanaon:
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PCI is similar to GDP per capita, but somemes it's based on Net Naonal Income (NNI)
instead of GDP. It helps to compare average income across countries.
Example:
If India’s NNI is ₹280 lakh crore and the populaon is 140 crore, PCI = ₹2 lakh approx.
But if a country like Switzerland has a PCI of ₹60 lakh, then its people, on average, are much
richer.
Fact:
The World Bank divides countries based on PCI:
• Low income: Below $1,135
• Middle income: $1,136 to $13,845
• High income: Above $13,845
India is currently in the lower-middle-income category.
4. Poverty Rate
Explanaon:
This measures the percentage of people living below the poverty line, i.e., those who cannot
aord basic needs like food, shelter, and clothes.
Example:
Suppose in a village of 100 people, 30 people can’t aord even two meals a day — then the
poverty rate is 30%.
Fact:
• In 2011, India’s poverty rate was around 21.9%
• By 2023, it dropped to less than 10%, thanks to government schemes and economic
growth.
Lower poverty = beer development.
5. Life Expectancy
Explanaon:
It means the average age a person is expected to live in a country. Longer life usually means
beer health care, nutrion, and living condions.
Example:
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If in Japan, people live up to 84 years on average, but in Chad (Africa), they live only up to 54
years, then Japan is clearly more developed in terms of health.
Fact:
• India's life expectancy (2024): ~70 years
• Japan’s life expectancy: ~84 years
6. Literacy Rate and Educaon Levels
Explanaon:
Educaon is a key part of development. Higher literacy rate and more years of schooling
show that people are skilled and capable of improving their income and life.
Example:
If most people in a country can’t read or write, they cannot get good jobs, and the economy
suers.
Fact:
• India’s literacy rate (2024): Around 77%
• Kerala (India’s most literate state): 96%
• Bihar (lowest): ~62%
7. Gender Development Index (GDI)
Explanaon:
This measures how equally men and women are treated in terms of educaon, income, and
health.
Example:
If women in a country can’t go to school or work freely, then even if the country is rich, it's
not fully developed.
Fact:
• Countries like Sweden and Norway have high GDI scores (very equal).
• In some countries, women sll earn 30–40% less than men.
8. Environmental Sustainability
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Explanaon:
True development also means using natural resources wisely so future generaons are not
harmed.
Example:
If a country cuts all its trees and pollutes its rivers just to make money, it may become rich
quickly but will suer later (like air polluon in Delhi).
Fact:
• Countries like Bhutan are carbon negave (they absorb more carbon than they emit).
• India faces major air polluon in big cies — this aects quality of life and
development.
9. Infrastructure Development
Explanaon:
Beer roads, electricity, hospitals, internet, and transport show a more developed economy.
Example:
If Village A has no roads or schools, and Village B has everything, then Village B is more
developed, even if both have same income.
Fact:
India has rapidly improved infrastructure, but sll:
• 1 in 10 rural families don’t have proper roads.
• Internet access is sll limited in many remote areas.
Conclusion
Economic development is not just about money. It is about beer lives — good health,
educaon, equality, and sustainability. So we need dierent measures to judge development
correctly.
Measure
Type
Example Use
GDP per capita
Income
Comparing average income between
naons
HDI
Mixed (Health, Edu,
Income)
Used by UNDP to rank countries
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Literacy Rate
Educaon
Check basic educaon levels
Life Expectancy
Health
Average lifespan of cizens
Poverty Rate
Welfare
Measuring basic needs of populaon
GDI
Equality
Comparing gender-based access
Environmental
Index
Sustainability
Future-focused development
2. Elucidate the concept of Disguised Unemployment and Unlimited Supply of Labour.
Ans: Introducon
In many developing countries like India, unemployment is a big issue. But not all
unemployment is visible. Some people seem to be working, but they are not really adding
any value. This kind of hidden unemployment is called Disguised Unemployment.
On the other hand, when there are too many people ready to work for very low wages, it is
called Unlimited Supply of Labour. These two concepts are closely related and are commonly
seen in poor or developing economies.
Let us understand both these concepts in a simple and easy way with the help of examples
and data.
What is Disguised Unemployment?
Disguised unemployment means that there are more people working on a job than actually
required. If some of them stop working, there will be no eect on total producon.
Denion:
Disguised unemployment is a situaon in which part of the labor force is either le without
work or is working in a job where their contribuon is not producve.
Example of Disguised Unemployment:
Let’s say a farmer has a small piece of land. On that land, only 3 people are needed to do all
the work properly. But in reality, 6 people are working — father, mother, son, daughter, and
two more relaves.
Even if 3 of them stop working, the output or crop producon will not decrease. This means
that the extra 3 people are not adding any value — they are disguisedly unemployed.
They appear to be working, but they are not needed.
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Characteriscs of Disguised Unemployment:
• Found mostly in agriculture and rural areas.
• People are not aware that they are unemployed.
• No eect on output even if some workers are removed.
• It happens due to lack of alternave employment opportunies.
Real-World Data:
According to the NITI Aayog report, around 45–50% of India’s workforce is engaged in
agriculture, but it contributes only about 15–18% to GDP. This shows that too many people
are working in low-producve sectors, leading to disguised unemployment.
What is Unlimited Supply of Labour?
The term Unlimited Supply of Labour comes from the famous economist W. Arthur Lewis,
who proposed the "Dual Sector Model".
It means that in many poor countries, there is a huge number of people willing to work,
especially at very low wages, because they have no beer opons.
Denion:
Unlimited supply of labour refers to a situaon where a country has a large number of
unskilled or semi-skilled workers, especially in the agricultural and informal sectors, who are
ready to work at low wages.
Example of Unlimited Labour Supply:
Think about a construcon site in a city like Delhi or Mumbai. Every day, many migrant
workers from villages come and wait outside to get hired. Even if the contractor says he will
pay just ₹200 a day, many people agree — because they are desperate for work.
This shows that there is no shortage of people ready to work, even for low wages. That is
what we mean by unlimited supply of labour.
Lewis Model (Dual Sector):
W. A. Lewis divided the economy into two sectors:
1. Tradional Sector – mostly agriculture, low producvity, surplus labour
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2. Modern Sector – industries, higher wages, higher producvity
According to him:
• Surplus labour from the tradional sector moves to the modern sector.
• This shi helps in the growth of industrialisaon.
• But since the supply is unlimited, wages remain low for a long me.
Characteriscs of Unlimited Labour Supply:
• Found in developing countries.
• Wages remain almost constant due to large labour supply.
• Workers are easily replaceable.
• Mostly seen in informal sectors like construcon, street vendors, domesc help.
Real Data (India Example):
• As per CMIE (Centre for Monitoring Indian Economy), India’s labour force
parcipaon rate is only about 40%, but the unemployment rate among youth (15-29
years) is nearly 18-20%.
• India has over 90% of workers in the informal sector, where wages are low and jobs
are not secure.
Relaon Between Disguised Unemployment and Unlimited Supply of Labour
Both concepts are connected, especially in countries like India:
Aspect
Disguised Unemployment
Unlimited Supply of Labour
Locaon
Mostly in rural/agriculture
Mostly in urban/informal sector
Nature
Hidden unemployment
Visible, but low-wage employment
Cause
More people than needed in jobs
Too many workers chasing few jobs
Eect
No impact on output even if workers
are removed
Low wages and job insecurity
Relaon
Creates surplus labour
That surplus becomes the "unlimited
supply" in cies
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When rural workers (who are disguisedly unemployed) migrate to cies, they increase the
supply of labour in informal sectors. This keeps urban wages low, as explained by Lewis.
Why Are These Problems Serious?
• Low producvity in agriculture keeps people poor.
• Low wages in cies don’t allow people to improve their lives.
• Leads to poverty, inequality, and frustraon.
• The country’s growth potenal remains limited.
Possible Soluons
1. Promote rural industries to absorb extra labour.
2. Skill development programs to improve employability.
3. Urban job creaon in manufacturing and services.
4. Educaon reforms to match skills with industry needs.
5. Land reforms and cooperave farming to improve agricultural producvity.
Conclusion
Disguised unemployment and unlimited supply of labour are hidden problems that aect
many developing countries like India. While people seem to be working, many of them are
underulized. This not only wastes human resources but also slows down economic growth.
Understanding these problems is the rst step to solving them. By creang more producve
jobs, improving skills, and reducing dependency on agriculture, we can reduce disguised
unemployment and control the unlimited supply of labour in low-wage sectors.
SECTION-B
3. Explain the Marxian concept of growth.
Ans: The Marxian Concept of Growth – A Student-Friendly Explanaon
Introducon
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When we hear the word "growth," we usually think of something becoming bigger or beer.
In economics, growth means an increase in producon, wealth, or income in a country over
me.
But Karl Marx, a famous philosopher and economist, had a very dierent way of looking at
growth. For Marx, growth was not just about more money or more goods. He believed that
the way wealth is produced and shared in a capitalist society creates big problems — like
inequality, poverty, and exploitaon.
Let’s break down his idea in a simple way so that every student can understand it, even if
you’ve never studied economics deeply before.
Who was Karl Marx?
• Born in 1818 in Germany.
• Wrote famous books like “The Communist Manifesto” and “Das Kapital.”
• His ideas formed the basis of Marxism, a theory that cricizes capitalism and
supports socialism and communism.
• He believed that society is always divided into classes — mainly rich (bourgeoisie)
and poor (proletariat).
What Does Marx Mean by Growth?
1. Growth = Increase in Producon and Prots
Marx observed that in capitalism, businesses want to produce more and earn more prot.
So, economic growth happens when factories produce more goods using labor and
machines.
For example:
• A factory that makes 1,000 shoes per day today starts making 2,000 shoes per day
next year — this is economic growth.
But Marx didn’t stop there. He asked:
Who is beneng from this growth?
2. Growth Comes Through Exploitaon of Workers
Marx believed that this kind of growth is not fair. Why?
• Workers work long hours.
• They are paid less than the value they create.
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• The extra value (called surplus value) is kept by the factory owner or capitalist.
Example:
• A worker is paid ₹500 per day.
• But the shoes they help make are sold for ₹2000.
• The remaining ₹1500 (minus other costs) goes to the owner — this is prot, created
by exploing labor.
So, Marx argued that economic growth in capitalism depends on the hard work of the poor,
but the rich get richer from it.
3. Growth Leads to Inequality
Marx believed that this unfair system leads to growing inequality:
• The capitalists (owners of factories, companies, land) keep growing richer.
• The workers (laborers, peasants, common people) stay poor or get even poorer.
Fact:
According to a report by Oxfam in 2023:
• The richest 1% of the world's populaon own more than 45% of global wealth.
• Meanwhile, half the populaon owns less than 1% of wealth.
This supports Marx’s idea that capitalism creates unequal growth.
4. Growth Causes Crisis (Boom and Bust Cycles)
Marx said that capitalist growth is not stable — it faces ups and downs.
• Somemes, there’s a boom (high growth, prots, and jobs).
• Other mes, there’s a bust (recession, job loss, business failure).
Why does this happen?
Because capitalists produce more goods than people can buy.
Example:
• A company makes too many mobile phones to increase prot.
• But people don’t have enough money to buy them.
• As a result, sales drop, the company loses money, and workers are red.
• This is called overproducon crisis, which Marx predicted.
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5. Growth Leads to Class Struggle
As inequality grows, workers realize that:
• They are being exploited.
• The system is unfair.
• They demand beer wages, working condions, or even revoluon.
This ght between the working class and owning class is called class struggle.
Marx believed this struggle will eventually end capitalism and bring a new system —
socialism, where:
• The means of producon (factories, land, tools) are owned collecvely.
• Wealth is shared fairly.
Summary Table
Concept
Explanaon
Example
Surplus
Value
Extra value produced by workers that
capitalists keep as prot
Worker earns ₹500, product sold at
₹2000
Exploitaon
Paying workers less than the value they
create
Factory worker paid low salary
while owner earns crores
Inequality
Unequal distribuon of wealth
Top 1% rich, boom 50% poor
Crisis
Overproducon leads to economic
downfall
2008 global recession
Class
Struggle
Conict between workers and capitalists
Strikes, protests, revoluons
Why Is the Marxian Concept of Growth Important Today?
Even today, many people refer to Marx’s ideas when talking about:
• Worker rights
• Fair wages
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• Wealth inequality
• Corporate greed
• Capitalism’s impact on the environment
In many countries, including India, people argue that while GDP is growing, poor people are
sll suering — proving Marx’s concerns are sll relevant.
Final Thoughts
Marx’s concept of growth is not just about numbers and prot. He asked:
• Is this growth helping everyone?
• Is it making the poor beer or worse?
• Is it fair that a few people get rich while many struggle?
He believed that true growth should benet all, not just the rich. His ideas push us to
queson and change unfair systems so that development is more equal and just.
4. Discuss in detail Solow Model of Growth.
Ans: Solow Model of Growth – Explained in Easy Words
The Solow Model of Growth (also called the Solow-Swan model) is a very important
economic model that helps us understand how countries grow over me. It was developed
by Robert Solow in 1956, and he even received a Nobel Prize in 1987 for his work.
Let’s break down the Solow Model in the simplest way possible, just like we are discussing it
in a classroom.
What is Economic Growth?
First, understand this:
Economic growth means an increase in the total goods and services (GDP) a country
produces over me.
But how does a country grow?
That’s where the Solow model helps — it shows us why some countries grow faster, and
others don’t.
Main Idea of Solow Model
The Solow model says that a country grows because of:
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1. Capital (K) – machines, tools, buildings, factories
2. Labour (L) – people who work
3. Technology (A) – beer ways of doing things
The model says: even if a country has more capital and labour, growth will slow down
unless technology improves.
The Solow Growth Equaon
In simple form, the Solow model is wrien as:
Y = A × F(K, L)
Where:
• Y = Output (or GDP)
• A = Technology
• K = Capital
• L = Labour
• F = Funcon (a way to combine K and L)
This means: Output depends on how much capital and labour we use, and how smartly
(technology) we use them.
Simple Example – The Factory Story
Imagine a country with:
• 100 workers (labour)
• 10 machines (capital)
At rst, the output is good. Now the country adds 10 more machines. Output increases.
But what happens if you keep adding machines again and again? Aer a point, each machine
helps less than before. This is called diminishing returns.
So, the Solow model says: just adding more capital won’t give you unlimited growth.
Diminishing Returns to Capital
This is a very important concept in Solow’s model.
Example:
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• First machine increases output by 100 units
• Second machine adds 70 units
• Third machine adds 40 units
The benet is reducing every me — this is diminishing returns.
So, a country can’t grow forever just by adding more capital (machines or buildings).
Steady State in Solow Model
The Solow model says there is a point called the “steady state”, where the economy stops
growing because:
• Capital increases
• But due to diminishing returns, output stops increasing much
So the economy becomes stable — this is called the steady-state level of capital.
At steady state:
• Investment = Depreciaon
• Capital per worker stops growing
• Output per worker stays the same
How Can Growth Connue? — The Role of Technology (A)
Solow solved this problem by saying:
"Only technological progress can give us long-term growth."
Technology improves the eciency of capital and labour.
Example:
A worker using a typewriter vs. a worker using a computer. Both work 8 hours, but the one
with the computer does more.
So, in Solow's model, technology (A) is the key to growth in the long run.
Capital Deepening vs. Technological Progress
Capital Deepening:
• More capital per worker (e.g., more machines)
• Helps in short-term growth
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• But ends due to diminishing returns
Technological Progress:
• Makes workers and capital more producve
• Leads to long-term, connuous growth
So the Solow model encourages countries to invest in technology, educaon, innovaon, and
research.
Facts and Data (Real World Examples)
1. South Korea vs. North Korea:
o Both started with similar resources in the 1950s.
o South Korea invested in educaon, technology, and openness to trade.
o Today, South Korea is a high-income country, while North Korea remains poor.
o Solow model explains this: South Korea improved A (technology) and human
capital, while North Korea didn’t.
2. India’s Growth:
o Before 1991, India had slow growth due to low capital and low eciency.
o Aer economic reforms, technology, foreign investment, and IT sector grew.
o Now, India is one of the fastest-growing economies.
o Solow model supports this: Growth improved because A increased.
Assumpons of Solow Model
1. Closed economy (no trade at rst)
2. Constant returns to scale (double K and L → double output)
3. Diminishing returns to capital
4. Populaon and technology grow at constant rates
5. Saving leads to investment
Cricism of Solow Model
1. It assumes technology comes from outside (exogenous), but doesn’t explain how it
improves.
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2. It ignores human capital (educaon, skills of workers) in early form.
3. Real-life economies are open, not closed.
4. Growth may depend on policies, instuons, and governance, which Solow doesn't
consider.
Later models like Endogenous Growth Theory (by Romer) tried to improve on this.
Key Takeaways (Summary)
Factor
Short-Term Growth
Long-Term Growth
Capital (K)
Yes
No
Labour (L)
Yes
No
Technology (A)
Yes
Yes
• Solow model is a simple but powerful tool to explain why some countries grow and
others don’t.
• Adding machines alone won’t help forever — we need technology and innovaon.
• It helps governments understand where to invest — in educaon, research,
innovaon, and eciency
SECTIONC
5 Explain the dierence between balanced and unbalanced growth model.
Ans: Balanced vs. Unbalanced Growth Model – Explained Simply
Let’s Understand the Topic First:
Before we jump into the dierence, let’s rst understand:
• What is economic growth?
• Why do we need a model for growth?
What is Economic Growth?
Economic growth means the increase in the producon of goods and services in a country
over me. It helps:
• Create jobs
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• Reduce poverty
• Improve standard of living
But now the big queson is: How should a country grow its economy?
Should it grow all sectors equally or focus on some sectors rst?
This is where the two models come in:
• Balanced Growth Model – Grow everything together.
Unbalanced Growth Model – Grow step-by-step, focusing on key sectors rst.
Let’s understand both in detail.
1. Balanced Growth Model – "Grow Together Strategy"
Denion:
Balanced growth means invesng in all sectors of the economy at the same me –
agriculture, industry, services, transport, educaon, etc. The idea is that if we grow all
sectors equally, the economy will become strong and self-reliant.
Simple Story Example:
Imagine you are preparing for your nal exams. You have 5 subjects: English, Maths, Science,
History, and Computer.
Now, if you decide to study all subjects equally every day, it’s like balanced growth. You
won’t become a master of one subject, but you’ll pass all with decent marks. That’s safe and
steady.
Economic Example:
Countries like South Korea in the 1960s tried to grow mulple sectors like educaon,
industries, and agriculture at once. This helped them become an advanced economy over
me.
Features of Balanced Growth:
• Equal aenon to all sectors (agriculture, industries, services)
• Less risk of inequality
• Promotes overall employment
• Reduces pressure on one sector
• Develops all regions uniformly
Facts:
• The theory was supported by economists like Ragnar Nurkse.
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• He said underdeveloped countries remain poor because of a “vicious circle of
poverty” – low income → low demand → low investment → low producon.
• To break this, he said we should invest in many industries together, so demand and
supply can grow at the same me.
Advantages:
• All parts of the economy improve
• Creates balanced job opportunies
• Avoids regional imbalance
• Reduces over-dependence on one sector
Disadvantages:
• Needs a lot of money and resources
• Poor countries may not aord such wide investment
• Progress may be slow in the beginning
2. Unbalanced Growth Model – "Step-by-Step Strategy"
Denion:
Unbalanced growth means invesng in some key sectors rst, and using their growth to push
the growth of other sectors later.
Instead of doing everything at once, you focus on strategic areas (like power, transport, steel
industry) and let them pull the economy forward.
Story Example:
Let’s go back to your exam story. Now, you decide to focus only on Maths and English rst,
because they carry high weightage. Once you are strong in these subjects, it becomes easier
to understand others like Science or Computer. That’s unbalanced growth.
You took a shortcut to achieve success — by focusing rst where it maers most.
Economic Example:
China in the 1980s focused heavily on industrial zones and infrastructure. Once those grew
strong, they used that strength to grow educaon, agriculture, and technology.
Features of Unbalanced Growth:
• Focus on limited sectors
• Use growth in one sector to trigger growth in others
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• More realisc for poor or developing countries
• Fewer inial resources required
• Helps idenfy and support priority areas
Facts:
• Popularized by economist Albert O. Hirschman
• He said that development needs creave imbalance
• Example: If electricity grows fast, industries will follow, and then transport and
services will also develop
Advantages:
• Less capital needed at the start
• Easier for developing countries
• Fast growth in focused sectors
• Encourages private sector investment
Disadvantages:
• Other sectors may remain backward
• Can increase regional inequality
• Risky if chosen sectors don’t perform well
• May lead to over-dependence on a few industries
Comparave Table
Feature
Balanced Growth
Unbalanced Growth
Growth Approach
All sectors together
Select sectors rst
Resource Need
High
Medium to Low
Risk Factor
Low
High
Suitable for
Rich or stable economies
Poor or developing economies
Example
South Korea
China, India (inial stages)
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Speed of Development
Moderate
Fast (in focused sectors)
Disadvantage
Costly and slow
Can lead to imbalance and inequality
Which Model is Beer?
There is no one perfect answer. It depends on the country’s situaon.
• If a country has enough money and planning, then balanced growth works well.
• But if the country is poor, has fewer resources, then unbalanced growth is more
praccal — like lighng one candle and using it to light the others.
6. Discuss the various stages of Rostow's theory.
Ans: Introducon: Who was Rostow?
Walt Whitman Rostow was an American economist who developed a theory in 1960 to
explain how countries develop economically over me. He believed that every country
passes through ve main stages of economic growth, just like a person grows from a child to
an adult.
Think of it like this: a country’s economy is like a student’s life. First, the student is in school
(learning), then in college (preparing), then they get a job (take-o), then earn more (drive
to maturity), and nally they rere and enjoy life (age of mass consumpon). In the same
way, countries also go through stages.
Let’s understand Rostow’s 5 stages of economic growth, with real-life examples and simple
stories.
Stage 1: Tradional Society
Main Features:
• Economy is based on farming or agriculture.
• People use primive tools and old methods.
• There’s no modern industry or technology.
• Educaon is limited, and people mostly believe in tradions and customs.
Example:
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Imagine a small village where everyone grows crops using oxen and hand tools. They don’t
use tractors or modern ferlizers. People believe in old customs and are unaware of modern
science.
Real-World Example:
Many African and Asian countries were in this stage before colonizaon. India before the
Brish arrived can also be considered in this stage. Most people were farmers, and there
was no large-scale industry.
Stage 2: Precondions for Take-O
Main Features:
• Some changes start to happen in farming and industry.
• People start to adopt new technology.
• There is investment in infrastructure like roads, schools, banks.
• Leadership starts pushing for growth.
• Foreign help or investment oen comes in.
Story Example:
Imagine that same village again. A young person from the village goes to a city and sees
machines. He returns and tells everyone about them. Some villagers buy a tractor. A road is
built to connect the village to the city. The government opens a school. Things are sll slow,
but they are changing.
Real Example:
In India, aer Independence in 1947, the government started building dams (like Bhakra
Nangal), factories, and colleges. This was India preparing for development — entering the
second stage.
Stage 3: Take-O Stage
Main Features:
• Rapid growth in industrial sector.
• Investment increases sharply.
• People shi from farms to factories (urbanizaon).
• The economy starts growing very fast.
• There is polical and social stability.
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Story Example:
Back in the village, more people start using machines. A factory opens nearby. Young people
go to work there. Banks give loans to farmers and businessmen. New buildings come up. The
village starts turning into a town.
Real-World Example:
South Korea in the 1960s–70s is a great example. It moved from a poor, farming-based
country to a fast-growing industrial economy. Factories opened, exports increased, and
incomes rose.
Stage 4: Drive to Maturity
Main Features:
• Economy becomes diverse – not just farming or one industry.
• New technologies are widely used.
• Exports grow, and income rises.
• People get beer jobs and educaon.
• Country becomes self-sustaining (doesn’t depend on foreign help).
Story Example:
Now, that village-turned-town becomes a full city. There are hospitals, universies, IT parks,
roads, and industries. People are educated and skilled. The town exports products to other
cies and even countries. It can now grow on its own.
Real Example:
China in the 1990s–2000s is a good example. It had rapid growth in technology, exports, and
industries. It became the "factory of the world".
Stage 5: Age of Mass Consumpon
Main Features:
• People have high incomes.
• They can aord luxury goods like cars, smartphones, etc.
• Service sector (like IT, tourism, educaon) becomes very important.
• There’s focus on social welfare, healthcare, and educaon.
Story Example:
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Now our city is fully developed. People go shopping in malls, use the internet, drive cars, and
go on holidays. There are hospitals, colleges, entertainment centers. Life is comfortable.
Real-World Example:
Countries like the USA, Japan, Germany, and UK are in this stage. Most people work in
oces, tech, educaon, or healthcare. They have high standards of living.
Summary Table of Rostow’s 5 Stages
Stage
Name
Key Features
Example
1
Tradional Society
Farming, no machines
Pre-1947 India
2
Precondions for Take-
o
Start of change, investment
begins
Post-independence
India
3
Take-O
Rapid growth in industry
South Korea (1960s)
4
Drive to Maturity
Tech and economy expand
China (1990s–2000s)
5
Age of Mass
Consumpon
High income, services grow
USA, Japan
Important Points to Remember
• Not all countries move through these stages at the same speed.
• Some countries may get stuck between stages due to corrupon, wars, or poor
planning.
• Foreign aid, educaon, leadership, and investment play a big role in moving to the
next stage.
• Some crics say the model is too simple and is based mostly on Western countries'
experience.
Conclusion
Rostow’s theory helps us understand how a poor country can grow step-by-step into a rich
one. It's like climbing a ladder — starng from tradional life, slowly building infrastructure,
taking o with industries, driving with technology, and nally enjoying the comforts of life.
By seeing real examples like India, South Korea, or the USA, we can relate to these stages
easily. Understanding this theory is helpful for any student who wants to learn about
economic development, planning, and progress of naons.
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SECTION-D
7. What are the various sources of capital formaon?
Ans: Introducon: What is Capital Formaon?
Before we talk about the sources of capital formaon, let’s rst understand what capital
formaon means.
Simple Denion:
Capital formaon means increasing the stock of capital like machines, tools, buildings,
equipment, and infrastructure in a country. It is the process of building wealth and invesng
money to create future income.
Just like a student invests in books, coaching, and laptop to study beer and get a job —
countries and businesses invest in capital to grow the economy.
Capital Formaon in Daily Life – A Short Story
Let’s say there’s a boy named Ravi, who lives in a village. He wants to start a dairy farm. But
to start it, he needs:
• A cow
• A shed
• Some tools
• Fodder and water supply
• Some cash
Now, where will Ravi get this money from?
Maybe his father gives him some savings, or he takes a loan from the bank, or maybe a
relave invests in his business.
All these are dierent sources of capital. The money that helps Ravi buy the cow, build the
shed, and run the dairy is part of capital formaon.
Why Capital Formaon is Important?
• It helps increase producon and income.
• It creates jobs.
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• It improves technology and infrastructure.
• It boosts the economic growth of a country.
Now let’s understand the various sources from where this capital comes.
Main Sources of Capital Formaon
1. Savings
This is the most important source.
When people or businesses save a part of their income instead of spending all of it, that
money can be invested.
Example:
If you get ₹1000 every month and save ₹200, you are creang capital. When crores of
people do the same, it becomes big money that banks can lend for business, industries, etc.
Real Fact:
India’s Gross Domesc Savings rate is around 30% of GDP. This means if India produces
goods and services worth ₹100, ₹30 is saved by people, businesses, and the government.
2. Household Sector
This means families and individuals like us.
• People save money in banks.
• Buy gold, property, or invest in mutual funds.
• Use part of their income for small businesses (like opening a shop, buying an auto,
etc.)
Example:
Ravi’s father gave him ₹50,000 from his savings to start the dairy farm. This is capital
formaon from the household sector.
Story:
A woman in Gujarat saves ₹1000/month from her tailoring work. Aer 1 year, she buys a
new sewing machine to grow her work. That’s capital formaon!
3. Business Sector / Private Sector
Big and small companies invest in machines, factories, tools, transport, etc.
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They:
• Reinvest their prots.
• Take loans or issue shares and debentures.
Example:
Tata Motors invests in a new car-making plant. This is capital formaon.
Data:
In India, private companies contribute over 40% of total capital investment.
4. Government/Public Sector
The government invests in:
• Roads
• Railways
• Airports
• Schools
• Hospitals
They raise money through:
• Taxes
• Loans
• Foreign aid
• Disinvestment
Example:
Government builds a new highway between Delhi and Agra. It creates jobs, boosts trade and
transport — all this is capital formaon.
Fact:
In India, the government’s share in Gross Capital Formaon is over 20%.
5. Banking and Financial Instuons
Banks and NBFCs (Non-Banking Financial Companies) collect savings from people and lend
them for investment.
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They help connect savers and investors.
Example:
Ravi takes a loan from SBI to buy two more cows. He repays the loan slowly, and the bank
keeps earning interest. This is capital formaon.
Data:
In 2022, total bank credit in India crossed ₹120 lakh crore, much of which goes into capital
investments.
6. Foreign Investment
Foreigners or foreign companies invest in Indian businesses, industries, and infrastructure.
This can be:
• FDI (Foreign Direct Investment) – when they build factories or buy companies.
• FPI (Foreign Porolio Investment) – when they invest in stocks and bonds.
Example:
Apple opens an iPhone factory in India. That’s FDI — a major capital inow.
Fact:
India received around $70 billion in FDI in 2023-24.
7. Capital Markets
Companies raise money through:
• Stock Markets (by selling shares)
• Bond Markets (by issuing bonds)
This gives them money to invest in projects, research, etc.
Example:
Reliance Industries issues new shares and raises ₹10,000 crore. This is used for seng up
new digital infrastructure.
8. Internaonal Aid and Loans
Developing countries oen receive loans or aid from:
• World Bank
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• IMF (Internaonal Monetary Fund)
• Asian Development Bank
Example:
India gets a World Bank loan to build rural roads under the Pradhan Mantri Gram Sadak
Yojana.
9. Public Deposits
Somemes companies directly collect money from the public by oering higher interest.
Example:
An NBFC like Bajaj Finance collects public deposits and then lends that money to car buyers,
home buyers, or businesses.
10. Self-Help Groups and Micronance
In rural areas, small savings by women and farmers through SHGs are used for small capital
investments.
Story:
A group of 10 women in Bihar save ₹100/month. Aer 6 months, they give a loan of ₹3000
to one member to buy goats. She earns more, repays, and helps another member.
This is grassroots-level capital formaon.
Conclusion: Why Understanding Sources of Capital Maers
Capital formaon is like planng seeds for a beer future. The more sources we have — the
more capital we can form — and the faster the economy grows.
As students, you can relate this to your own life:
• Saving for books
• Invesng in a beer phone for online classes
• Taking a loan for college
All these acons are mini examples of capital formaon, and understanding its sources helps
us understand how an economy grows from individual acons to naonal development.
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8. Which technique should be used in labour abundant naon like India?
Ans: Simple Answer (in one line rst):
In a labour-abundant country like India, labour-intensive techniques should be used because
they create more employment opportunies, use available human resources eciently, and
help in reducing poverty.
Now, let’s understand this in a simple, student-friendly way.
Understanding the Queson First
Let’s break the queson into smaller parts:
What does "Labour-abundant naon" mean?
A labour-abundant naon is a country where a lot of people are available for work, but there
are not enough machines, capital (money), or resources to provide modern jobs to
everyone.
India has a huge populaon — over 140 crore (1.4 billion) people. Out of this, more than
50% are young and capable of working. But we do not have enough factories, machines, or
money to give jobs to everyone using machines or robots.
So, we say India is rich in labour but poor in capital (machines, technology, big investments).
What are the two types of techniques?
1. Labour-Intensive Technique
• Uses more human labour.
• Uses less machinery.
• Example: Farming with hands, tailoring clothes by hand, making bricks manually.
2. Capital-Intensive Technique
• Uses more machines and tools.
• Uses less human labour.
• Example: Using tractors and harvesters in farms, automated machines in factories,
robots in car manufacturing.
Which technique is beer for India?
Answer: Labour-Intensive Technique
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Let’s now understand why labour-intensive technique is beer for India using examples,
stories, and facts.
Story Example: Raju the Farmer
Imagine a village boy named Raju. He has just nished school and is looking for a job. In his
village, 100 people like him are jobless.
A rich businessman comes to the village with ₹10 lakhs to start a factory.
• If he uses machines (capital-intensive), he can buy 10 big machines and employ only
5 people to run them.
• But if he uses labour-intensive method, he can hire 50 workers and buy only basic
tools.
Now think — which method gives more jobs to people like Raju?
Of course, the labour-intensive one.
That’s why in India, where unemployment is a big issue, labour-intensive techniques are
more suitable.
Some Real Data and Facts
1. India’s Labour Force (2024):
o Around 500 million people are part of India’s workforce.
o Out of these, many are sll unemployed or doing low-paid work.
2. Unemployment Rate (2023):
o The unemployment rate for youth (ages 15–29) is around 15–20% in many
states.
o Many people want to work, but there are not enough jobs.
3. Agriculture sector:
o Sll the largest employer in India.
o Uses mostly labour-intensive methods.
4. Make in India and MSMEs:
o The government’s “Make in India” program supports small factories and
businesses.
o Micro, Small, and Medium Enterprises (MSMEs) provide jobs to over 11 crore
people, mostly using labour-intensive methods.
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Benets of Labour-Intensive Techniques in India
1. Creates More Jobs
• India’s biggest problem is unemployment.
• Labour-intensive methods help in reducing joblessness.
• Helps the poor earn money and support their families.
2. Reduces Poverty
• When more people are working, they earn wages.
• With more income, they can aord food, educaon, and health care.
3. Low Cost for Small Businesses
• Small businesses don’t have enough money to buy big machines.
• Labour-intensive methods are cheaper for them.
4. Good Use of Available Resources
• India has more people than machines.
• So, using people's skills and energy is smart.
5. Supports Rural Development
• Most Indian villages have more people and less technology.
• Labour-based jobs like farming, construcon, handicras help rural development.
Problems with Capital-Intensive Techniques in India
• High Cost: Machines are expensive. Not every business can aord them.
• Fewer Jobs: One machine can do the work of 10 people, so unemployment
increases.
• Skill Shortage: Running machines oen needs skilled labour. India has many
unskilled or semi-skilled workers, so they can't operate modern equipment.
Student-friendly Analogy: Making Ros
Suppose your school plans to make 1000 ros for a big event.
Opon 1: Buy a ro-making machine (Capital-intensive)
• Cost: ₹1 lakh
• Needs 1 person to operate
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• Makes 1000 ros in 1 hour
Opon 2: Hire 10 ladies from a village (Labour-intensive)
• Cost: ₹500 per person = ₹5000
• Makes 1000 ros in 2 hours
In India, where many people need jobs, which opon is beer?
Opon 2, because it gives income to 10 families instead of just using 1 machine.
Final Answer in Simple Words:
In a labour-abundant country like India, the labour-intensive technique is beer because:
• It creates more employment
• Uses the country’s biggest strength — its people
• Helps in reducing poverty
• Supports small businesses
• Is suitable for rural areas
However, India can also slowly mix in some technology (semi-automac tools) to improve
producvity without removing jobs. This way, we can balance both human work and
machines in the future.
Conclusion:
“In a country where more hands are free but machines are few, using those hands is the
smartest choice.”
That’s why labour-intensive techniques should be promoted in India — not just to grow the
economy, but also to grow the lives of the people.
“This paper has been carefully prepared for educaonal purposes. If you noce any mistakes or
have suggesons, feel free to share your feedback.”
